China publishes new rules for IPOs, seen as signal listing resumption imminent

SHANGHAI Fri May 9, 2014 7:38am EDT

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SHANGHAI (Reuters) - China issued new, detailed rules governing initial public offerings, seen as a signal that new listings will hit markets soon after a two-month hiatus while regulators tweaked regulations.

The new set of rules, published on the website of the Securities Association of China, are technical in nature, dealing with standards for underwriter and investor participation in IPO share auctions, but their publication was seen as clearing the way for the resumption of new listings which some investors fear could send China's shaky share markets even lower.

The official China Securities Journal reported in April, quoting an anonymous insider, that IPO resumption would resume after the new set of rules were in place.

In a bid to shore up weak domestic markets, the China Securities Regulatory Commission (CSRC) put an unofficial freeze on IPOs in late 2012, only relaxing the suspension in early 2014 when it allowed a batch of previously approved companies to list in January and February.

However, problems with the listings, including accusations of overpricing and insider manipulation, resulted in dozens of companies cancelling their while the CSRC investigated underwriters and inside investors for irregularities.

At the same time, the CSRC effectively held off from processing applications from 600-plus companies still in the queue in order to revise regulations.

The further delay led some market watchers to worry that the resumption of mainland IPOS -- which some analysts predicted could prove a bonanza for investment banks and underwriters given pent up demand -- could fail to meet expectations.

However, the CSRC resumed publishing IPO applications on its website in late April, and so far nearly 300 companies have submitted preliminary prospectuses, hoping to raise over 200 billion yuan ($32.11 billion) combined, according to Reuters estimates based on fundraising targets in the prospectuses.

Several companies have already been approved to list, but none have yet entered the final phrase of the process in which the IPO dates and fundraising targets are formalized.

While this is seen as good news for brokerages, investment banks, underwriters and for the companies themselves, individual investors are less sanguine.

The original freeze on IPOs was widely seen as an attempt to support market indexes, which retail investors complained were being diluted by a constant influx of new listings even as net capital inflows into Chinese stocks generally stagnated.

Beijing has committed to stepping out of the IPO approval process in the long run, switching to a registration-based system similar to that employed in developed economies where the market effectively decides who gets to list and for how much.

However, in the near term the CSRC has strengthened management of the auction system and the way IPOs can be priced, attempting to restore confidence among retail investors concerned that the system is rigged to benefit insiders. ($1 = 6.2280 Chinese Yuan)

(Reporting by Xu Yong and Pete Sweeney; Editing by Kim Coghill)

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Leesen wrote:
Despite the fact that Securities Association of China has just issued new rules governing IPO’s for which the China Securities Regulatory Commission (CRSC) is mandated to provide specific new IPO regulations, a preliminary Prospectus from a subsidiary of a major state-owned enterprise was posted on the CRSC website on May 5, 2014 containing incorrect and misleading information. In this instance, the major state-owned enterprise and its subsidiary deliberately understated the value of a significant gold resource in the IPO’s portfolio of gold resource assets, because of an ongoing ownership dispute involving the gold resource in question. According to CRSC’s section 10 listing rule, a company Prospectus cannot be approved if there is an ownership dispute regarding a major asset included in the IPO. In this case, the IPO assigned a 3% valuation to the gold resource in question. If the value of the gold resource had been fully and correctly disclosed, it would represent 30% of the overall IPO asset valuation and therefore would not be considered an immaterial portion of the IPO asset portfolio. The gold resource in question is the Hatu Qi-2 property located in the Tian Shan mineral belt in Northwest Xinjiang Province. A 560,000 oz. gold resource was discovered at Qi-2 by Dynasty Gold Corp. (a Canadian junior exploration company) and this resource is 70% owned by Dynasty, with the 30% balance owned by Xinjiang Non-Ferrous (“XNF”) via a Joint Venture Agreement executed by both parties in December, 2003. Dynasty Gold has previously lodged many complaints and objections with the CRSC, yet the same misleading information was still released to the public.

May 11, 2014 3:21pm EDT  --  Report as abuse
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